I was undecided about the Canon 870 (I don't know if your sd780 in the title is a typo) and the Lumix tz5 last summer -- ended up buying the canon. It takes great pictures but I do get the orbes some people mention in digital camera forums (like dpreview.com).

Anyways, I now regret my choice.

The lumix offers better quality (HD) video and more importantly, much more optical zoom. Those are features that I have missed in vacations I have taken since. It also seems that there are more manual functions in the lumix. But, it is a bulkier camera and some people might prefer the portability of the canon.

They are both good cameras, Canon has more recognition here in the US so people might be more prone to buying that brand. But the Lumix is an excellent camera and I might even trade my canon for the new lumix (tz7).

I do recommend the underwater housing -- it's a bit costly but so worth it! Protects your camera from rain, snow, ocean and the underwater pics and videos you can take are a lot of fun!

Which is why I suggested the Canon SX200IS. It has Av, Tv, M, and P modes. Plus it has a 720p movie mode and a 12x (wide-end) zoom. If the manual modes are important, then the SX200IS is the one to get. However, the ZS3 (and TZ5) have better movie modes in that you can use optical zoom while recording.

But then the ZS3 doesn't have the manual modes as you mentioned.

So it all depends on what the end user values most.

For me, if I ever ending up getting a new P&S, it'd be the Panny. If I need manual control, I'd grab my XSi. The better video mode is the clincher for me. Besides, my wife would be the main user of the P&S and she never uses the XSi out of the Fully Auto mode.

Which is why I suggested the Canon SX200IS. It has Av, Tv, M, and P modes. Plus it has a 720p movie mode and a 12x (wide-end) zoom. If the manual modes are important, then the SX200IS is the one to get. However, the ZS3 (and TZ5) have better movie modes in that you can use optical zoom while recording.

But then the ZS3 doesn't have the manual modes as you mentioned.

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But you can get a used DSLR for that kind of money, hence the FX500, which also starts at 25mm.

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